India's Modi Needs to Act Quickly

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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Having ridden a huge anti-incumbency wave in India to an overwhelming election win, Narendra Modi now faces the challenge of meeting voter expectations for his upcoming tenure as his country's next prime minister. To succeed, he needs to quickly work out details for accomplishing three things during his first 100 days: announce a bold new economic program, create better political and institutional conditions for its implementation, and deliver some early wins, even if they're small.

Modi's victory had a lot to do with deep popular disappointment about India's economic performance. Gross domestic product growth had fallen to less than 5 percent -- in an India used to high growth rates in recent years, that's a recession -- while inflation climbed to 9 percent in the midst of widespread concerns about corruption and policy inaction. To add financial insult to economic injury, India also experienced a mini currency crisis last year that forced the central bank to raise interest rates.

Voters clearly believed that India's previous government had run out of both energy and ideas, and that's why it's imperative that Modi embrace upfront his campaign promises of delivering a bold economic program. To secure early momentum, he should do so in the context of a revamped federal budget, and he should not shy away from delicate areas such as land, labor, financial and retail reforms.

Even with its overwhelming electoral victory, Modi's new government has to secure the political cooperation of the upper house of India's parliament where his party is in the minority. It will also have to minimize resistance from India's powerful states.

The longer these political constraints linger, the more likely they are to frustrate Modi. So it's imperative that he presses ahead forcefully to corral the political cooperation his country needs for its economic revival. And he is in an unusually good position to do so.

Modi's election win marks the first time since the country's independence that a non-Congress party has secured a majority; and, by India's standard, Modi's party, BJP, has a very large majority indeed. It is also very rare for a prime minister to come to power having, like Modi, served as chief state minister.

What about the early wins? Here Modi can -- and needs -- to use his first round of government appointments to send strong signals. There's no better place for him to start than by securing the continued service of Raghuram Rajan, the well-regarded and effective governor of India's central bank.

In giving Modi a decisive electoral triumph, Indian citizens have placed their hopes in a new political configuration that's capable of reviving the economy and enabling it to meet its considerable potential. If Modi is serious about meeting those hopes, he should frame a detailed initial response around speed -- and make it a point that his administration takes decisive steps in its first 100 days.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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